Alcoa pays $2.85 billion for jet engine producer Firth Rixson

Alcoa took a big step in boosting its aerospace business today, announcing it will pay $2.85 billion in cash and stock to acquire Firth Rixson, a United Kingdom jet engine component producer.

The New York-based aluminum producer said the acquisition will contribute $1.6 billion in revenue to its aerospace segment by 2016 and that the acquisition will generate $100 million in cost savings five years after the acquisition is completed.

Alcoa Chairman and CEO Klaus Kleinfeld called it “a major milestone in Alcoa‘‍s transformation.”

“It will significantly expand our market leadership and growth potential,” Mr. Kleinfeld said in a statement. “Firth Rixson increases the earnings power and broadens the market reach of our high-value aerospace portfolio and will deliver compelling and sustainable value for customers and shareholders.”

Firth Rixson’‍s revenue is expected to grow from $1 billion in 2013 to $1.6 billion over the next three years and will grow at more than double the pace of the global aerospace market through 2019, Alcoa said.

Under the terms of the definitive agreement Alcoa announced today, it will pay Oak Hill Capital Partners, the private equity firm that owns Firth Rixson, $2.35 billion in cash and $500 million in stock. Oak Hill could get up to an additional $150 million based on Firth Rixson’‍s performance following the acquisition.

Boards of both companies have approved the transaction,. Alcoa said it expects to receive regulatory approvals and complete the purchase by the end of this year.

The news was announced before Wall Street opened. Alcoa shares closed Wednesday at $14.55, up 8 cents. They are up 37 percent this year.

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